Trump unleashes higher tariffs on China as trade war intensifies

U.S. President Donald Trump speaks at the White House on May 9 as he prepared to institute higher tariffs on Chinese goods.

WASHINGTON -- President Donald Trump boosted tariffs Friday on $200 billion in goods from China and was preparing more in his most dramatic steps yet to extract trade concessions, further roiling financial markets and casting a shadow over the global economy.

China immediately said in a statement it is forced to retaliate, though hadn’t specified how. The move came after discussions between President Xi Jinping’s top trade envoy and his U.S. counterparts in Washington made little progress on Thursday, with the mood around them downbeat, according to people familiar with the talks. Negotiations resumed Friday but both sides left the talks without a deal.

Asian stocks whipsawed in heavy trading. Chinese state-backed funds were reported jumping into the local market after shares slumped, and the Shanghai Composite closed up 3.1%. S&P 500 futures were down in London trading, putting U.S. stocks –- a key metric of performance in Trump’s own analysis -- on course for the worst week since December.

The fresh wave of tariffs marked a sharp reversal from just last week, when U.S. officials expressed optimism that a pact was within reach.

Ahead of the talks on Thursday, Trump said the U.S. would go ahead with preparations to impose 25 percent tariffs on a further $325 billion in goods from China, raising the prospect of all of China’s goods exports to the U.S. -- which were worth about $540 billion last year -- being subject to new import duties.

Such a move would take weeks to deploy. But it would have significant repercussions for the U.S., Chinese and global economies. Economists at Moody’s Analytics said in a report this week that an all-out trade conflagration between the world’s two-largest economies risked tipping the U.S. economy into recession by the end of 2020 just as voters go to the polls in the U.S.

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Economic impact

The world’s two largest economies will both get pinched. Bloomberg Economics calculates the new increase will raise the drag on Chinese growth to 0.9 percentage point from 0.5 percentage point. The International Monetary Fund estimates the pullback on the U.S. expansion at about 0.2 point, and potentially more if there’s a blow to markets and confidence.

The new tariffs that took effect at 12:01 a.m. Washington time Friday raise from 10 percent to 25 percent the duties on more than 5,700 different product categories from China -- ranging from cooked vegetables to Christmas lights and highchairs for babies.

Auto parts ranked 10th on the list of products facing the higher tariffs with a value of $2.3 billion, according to the U.S. International Trade Commission. Among the motor vehicle parts made in China and targeted with higher U.S. duties are seats, wheels, bumpers, door assemblies, shock absorbers, radiators, transmission parts and instrument cluster clocks, according to a list postedby the U.S. Trade Representative's office.

U.S. officials have said the new duties -- introduced on just five days’ notice -- will not apply to goods already on boats headed for American shores. A 25 percent tariff is already in place on a further $50 billion in imports from China.

Some American industries were quick to decry Trump’s decision, which will hurt some of his key political constituencies, including farmers and manufacturers.

The tariffs will “suppress job gains for the industry by as much as 400,000 over 10 years. It will also invite China to hit back at American businesses, farmers, communities, and families,” said Kip Eideberg, vice president of government affairs for the Association of Equipment Manufacturers.

Business Roundtable, a group of U.S. corporate CEOs, said on Friday it was concerned that rising U.S.-China tariffs will hurt the American economy.

In a statement issued after the U.S. and China concluded two days of trade talks, the group said it supports the Trump administration's efforts to resolve structural issues with China. It said any deal must address China's unfair trade practices and added that a final agreement with China should "take tariffs down."

Chinese Vice Premier Liu He huddled with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington on Thursday for about 90 minutes of talks before breaking and reconvening later for a working dinner that broke up around 8:40 p.m. Washington time.

Though the talks resumed Friday, some close observers said they were not hopeful for any meaningful breakthroughs. One person familiar with the discussions said that U.S. officials were unsure whether Liu had the authority to make any meaningful commitments. It was also unclear whether China had resolved the internal debates that had led to last week’s rescinding of prior commitments to enshrine reforms agreed in Chinese law.

Trump said later Friday talks would continue.

'With sincerity'

Ahead of the latest round of meetings, Liu told Chinese state media he was coming to Washington under pressure but “with sincerity” and warned that a move to raise tariffs by the U.S. starting Friday was not a solution.

Earlier on Thursday, Trump sought to calm U.S. financial markets after he insisted it was still possible to reach a deal this week, even as he reiterated plans to raise tariffs on Chinese goods. Trump, speaking at an event in Washington, also said he may hold a phone call with his Chinese counterpart, Xi. No call between the two leaders had taken place by late Thursday nor had one been scheduled, according to a senior Trump administration official.

“He just wrote me a beautiful letter, I just received it, and I’ll probably speak to him by phone, but look, we have two great alternatives, our country is doing fantastically well,” Trump said. “Our alternative is an excellent one, it’s an alternative I’ve spoken about for years. We’ve taken well over $100 billion from China in a year.”

China has disputed the U.S. characterization that the country reneged on prior commitments. But it has also sent its own signals that a deal could take time.

“There’s definitely disappointment and frustration” in China, said Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing. “We thought we were on a good path of making progress and having a deal."

Trade data released Thursday showed the U.S. trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced. Strong gross domestic product and jobs numbers in recent weeks have also emboldened Trump.

“When people looked at the economic numbers, they were shocked. When they look at the import-export numbers they were shocked,” Trump said Thursday. “Try looking at all of the tariffs that China’s been paying us for the last eight months. Billions and billions of dollars.”

While Trump insists that the tariffs are paid for by China, most economists say the evidence shows that their cost is being absorbed by American companies and consumers.